Fixed Account Availability Restrictions

Section 4223(c)(2)(C) of the Insurance Law was recently amended by
§ 29 of Chapter 62 of the Laws of 2003 to reduce the minimum interest rate for annuity
contracts subject to standard nonforfeiture law for annuities from 3.00% to 1.50%. The change
in the minimum interest rate is effective until May 15, 2005.

The Department has also approved
product submissions that include fixed account availability restrictions in variable annuity
contracts. The restrictions generally give insurers discretion with respect to the establishment
and continuing availability of fixed account options in variable annuity contracts.

The restrictions
in variable annuity contracts and corresponding notice and disclosure requirements that have
been approved for both individual and group annuity contracts with fixed accounts subject to
Section 4223 include the following types of provisions:

1. Deposit Restrictions

Discontinuance of Contributions. Provisions granting the insurer the
right not to accept additional deposits and transfers into the fixed account of a variable
annuity contract after issue have been approved. Contracts issued without this provision
cannot be amended to grant the insurer this right.

Discontinuance of Deposit Accounts
of Varying Maturity. Provisions reserving the right not to offer fixed account
guarantee periods for future deposits or transfers at the expiration of the interest
rate guarantee have been approved. Typically, an insurer may reserve the right
not to offer guarantee periods of shorter duration because the yield on investments
may not be sufficient to support the minimum interest rate guarantee and other
expenses.

Notice of Discontinuance. The Department
has required contract language providing 30 days advance written notice when the
discretionary authority to discontinue accepting new contributions and transfers
into the fixed account would be exercised1.
Prior notice would give contract and certificate holders time to decide where to
invest new deposits and transfers. Contract and certificate holders must be notified
when the restrictions on fixed account are lifted. However, a minimum notice period
is not required. An advance notice to customers similar to the following, would
be acceptable:

The company will not be accepting new premiums or transfers to the fixed account with an effective
date 30 days or more after the date of this letter. Therefore, we must receive your allocation
or transfers instructions within the allowable time frame, regarding which investment options
other than the fixed account to which you may wish to allocate premiums and/or transfers.
You will be notified in writing as soon as the company's restriction on such fixed account
activity no longer exists.

Disclosure of Non-Availability at Issue. If the fixed account (or one or more fixed account
guarantee periods) is not available at the time of issue, the variable annuity contract
forms must explicitly provide that the fixed account (or one or more fixed account guarantee
periods) is currently not available. Disclosure must be provided on the application form
as well as the face and specification pages of any deferred annuity contract that is labeled
as a fixed and variable annuity. Insurers can develop a distinct application form (or use
an endorsement stamp) when the fixed account is not available at issue2.
The face page could include the following:

"The fixed account (or one or more fixed account guarantee periods) may
not be available on the issue date. Please check the specification page to determine whether
the fixed account (or one or more fixed account guarantee periods) is currently available."

Other Fixed Account Deposit Limitations. We have approved provisions limiting fixed account
deposits and transfers to a percentage of contract funds. Such limitations must be stated
in the application and on the specification page of the contract or certificate forms.

Submission Letter Statement or Explanation of Variables. The submission letter or explanation
of variables must provide (a) an explanation stating that the discontinuance right would
only be exercised when the yield on investments would not support the statutory minimum
interest rate and (b) an assurance that the discontinuance would not be exercised in an
unfairly discriminatory manner.

We have approved provisions that reserve the right to transfer fixed account funds to a
money market or other account when the fixed account interest rate guarantee period expires.
For example, we have approved a provision stating that upon the expiration of a guarantee
period, the guarantee period value will automatically be transferred to a new guarantee
period of the shortest duration available or to the money market variable
sub-account if no guarantee periods are available.

We have not approved this provision as an amendment to existing contracts.

The discontinuance and transfer is triggered in conjunction with the
insurers decision
not to accept new deposits and transfers into the fixed account or not to make fixed account
guarantee periods available.

No Surrender Charge. We have only approved transfers that are made without withdrawal charge
or negative market value adjustment. The insurer-initiated transfer is made on the same
basis as involuntary cashouts under Section 4223(a)(2). Such transfers equal to the actual
accumulation amount, with no withdrawal charge. Note that withdrawals at the expiration
of the specified time interval cannot be subject to a market value adjustment.

Notice of Discontinuance and Transfer. The Department has required contract language providing
30 days advance written notice if the insurer decides not to offer new guarantee periods
or any fixed account option and to transfer fixed account funds.

Money Market Default. We have approved provisions that make the money market account option
the automatic option for transfer in the event of discontinuance to limit market exposure
caused by such transfer.

3. Right to Reduce the Minimum Interest Rate

Variable Item. We have approved provisions making the minimum interest rate a variable
item so that it can be changed for new issues only of the contract when the nonforfeiture
law rate is changed. Our expedited procedure on the website requires a refiling to change
the interest rate even though bracketed.

Prospective Application for New Issues Only. We have not approved provisions giving the
insurer the right to reduce the minimum interest rate for in force contracts when the nonforfeiture
law is amended. The minimum interest rate at issue is guaranteed for the life of the contract.

The insurer must confirm that (a) the change in the minimum interest rate would only be
made to coincide with changes in the statutory minimum interest rate, (b) any change in
the minimum interest rate would only be used for new issues, and (c) the minimum interest
rate stated in the form at issue is guaranteed for the life of the contract.

4. Underwriting Safeguards

We have approved assignment and change of ownership provisions that permit the insurer
to disregard assignments or changes if the risk assumed is materially altered by transferring
rights or benefits to an institutional investor or an individual representing an institutional
investor.

We have been advised that some institutional investors often purchase multiple policies
for the same contract owner to avoid single policy underwriting amount limits and then
assign rights to one individual (the institutional investor) to be used for purposes not
intended in the policy.

Note that insurers have two years under the incontestability provision to detect any circumvention
of the companys underwriting requirements.

[2] If the variable contract provides for dollar cost
averaging and the dollar cost averaging is not available at issue, similar disclosure must
be provided. For variable annuity contracts
with a fixed account option consisting solely of amounts allocated to dollar cost averaging,
insurers should make every effort to ensure that consumers are not misled as to nature
of the fixed account investment option available under the contract.